Fidelity: conservative MPF funds cost less to run, so fees can fall furthest

Fidelity International said in November 2011 it would cut fees on 15 MPF funds — conservative and equity funds alike — by 7% to 20% from Saturday 12 November; BCT would follow with 2%–17% cuts on 14 funds from 2012.

Why did conservative funds get the biggest cut?

陸劍平, Fidelity’s head of institutional business, explained that conservative funds — about 9% of total assets — involve no complex equity or bond investment and consume fewer resources, leaving the most room to cut. Actively managed equity funds need manager and analyst teams, so their cost base is higher and their fee room smaller.

Two forces behind MPF fee cuts

陸劍平 pointed to two drivers as trustees cut one after another: growing assets under management diluting administrative costs, and the Employee Choice Arrangement due in 2012 — cuts as both cost giveback and preparation for portability competition.

Cheapest is not always fittest

Conservative funds charge the least, but they suit not everyone: their expected returns are also the lowest, and the risk of trailing inflation over the long run is real. In 2011’s turmoil, conservative funds stayed positive while equity funds bled, tempting many to switch — but young members dumping equity funds at the lows trade long-run returns for short-term comfort. Choose by time horizon first, fees second. The MPF education hub compares risk and return across fund types.